There’s good news if you’ve purchased depreciable property for your business in 2018!
The Tax Cuts and Jobs Act (TCJA), which has reduced taxes across the board, has several new mechanisms to reduce taxes paid by small businesses that will be applicable for the upcoming tax filing season.
One of these mechanisms is depreciation.
Businesses have always been able to deduct the cost of tangible property placed into service with their business, over the useful life of the property.
There are positive changes effecting three types of tax depreciation, let’s examine each type individually.
Section 179: The maximum amount a business can expense increases to $1 million. The phase-out threshold amount increases to $2.5 million. This means you can now deduct 100% of the cost of fixed assets placed into service in 2018, up to $1 million. For amounts over $1 million a partial deduction is available up to a phase out of $3.5 million. Also, if the business has a loss in 2018 it can’t use any of the section 179 depreciation in the current year, but this amount is carried over to the subsequent tax year.
And, the definition of what type of property qualifies for section 179 depreciation to include certain improvements to nonresidential real property placed in service after the date such property was first placed in service.
Bonus Depreciation: This amount has increased from 50% of the cost of property placed into service to 100% in 2018. Also, Bonus deprecation is available for both new and used properties. The only caveats to this is the property in question must be used at least 50% of the time for business and it must not be purchased from a related party.
Vehicle Depreciation: The cap placed on depreciation deductions for business-use vehicles has increased. The new higher limits apply to vehicles placed in service after 12/31/17 and meet certain criteria.
The information and examples in this article should not be considered tax advice. The new tax law is complex, and every business situation is unique.
To learn more about tax issues for both individuals and business, check out Tony’s Tips on www.amazzoaccounting.com. Also, should you have any questions about this article, don’t hesitate to give us a call at 610.775.9216.